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6.
… where collaboration and cultural exchangeare developing very well…and a great country to work in ► Ranked the 15th most attractive FDI destination for 2008-2010 FDI inflows (UNCTAD) 25 ► More than 21,000 companies with international capital 19,3 19,9 20 17,0 ► Around US$ 57 billion of FDI inflows in the last 4 years 15,9 15 ► “Guarantee of Transfers” and “International Arbitration” availableBillion US$ 10,0 ► New R&D and Innovation Support Law dated February 2007, 10 7,8 increased productivity, reduced production costs, commercialized 6,9 technological knowledge, developed pre-competition cooperation 5 2,8 1,8 1,1 ► Accession negotiations with the EU since 2005 0 ► Customs Union with the EU since 1996, and a total of 12 free trade agreements (FTA). ► High demand for energy, with minimum natural resources Source: Undersecretariat of TreasuryPage 6 Turkish Business Environment & Retail Sector in Turkey

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Turkey - SWOT Analysis Strengths Opportunities► Largest youth population among 27 EU countries ► Strong growth prospects, in nearly all sectors► Strong geopolitical position which enables the country to be a hub ► Large and growing consumer base between the Middle East and Europe ► Despite the economic fragility in the world, many companies still► Promising GDP growth rates have strong balance sheets and are eager for foreign partnership► Diversity in industrial production ► The government has pushed forward new pension and labor► Strong consumer base code reforms that should lower labor costs for businesses► Recent structural reforms, especially those aimed at improving ► Despite risks to the EU accession process, Turkey remains to be transparency and increasing capitalization within the banking system an important convergence play for investors► Membership in a customs union with the EU, which makes it a very ► The reform program is expected to increase the opportunities for attractive platform for export-oriented manufacturers investment in privatized state firms► Transparent monetary policy which is geared towards stabilizing inflation Weaknesses Threats► Lack of sophisticated corporate sellers and buyers ► Political priorities / concerns► Changing / volatile tax regulations; widespread tax evasion ► High degree of exports and dependency on world economic climate► Bureaucracy ► Relatively high value expectations of sellers► Lack of R&D, innovation and high technology in many sectors ► A global economic slowdown will weigh on foreign investment► Limited coverage of sector data, especially in non-regulated sectors and the export sector► Reliance on foreign direct investment inflows to support the balance of ► Infrastructural issues (especially in relatively under developed payments highlights a strong dependence on key developed world regions) and the ongoing transportation problems economies.► Differences in development levels of the geographical regionsPage 7 Turkish Business Environment & Retail Sector in Turkey

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Retail SectorSector Overview Sector Overview Overall Retail Sector – Sales Volume Growth► The retail market had been composed of traditional shops in Turkey until 400,0 4.315 4.387 4.478 5.000 4.129 4.220 1990’s. For example in the food sector, most Turkish consumers meet their 350,0 3.977 4.500 3.803 daily shopping needs through a variety of smaller shops, visiting the bakkal 4.000 300,0 (small corner store, which is often family run) for packaged food items, the 3.500 2.806 kasap (butcher) for poultry and meat, the manav (greengrocer) for fresh fruit 250,0 3.000 TL (billion) and vegetables, or the pazar -- a weekly outdoor market found in each 200,0 2.500 TL neighborhood. 325,2 334,2 344,8 2.000 150,0 289,4 304,0 314,4 269,7 273,5► After 1990, the opening of the supermarkets brought a new era in the retail 1.500 100,0 market in Turkey and this became the start of modern retailing in Turkey. 1.000 50,0 500► Currently the retail market in Turkey is a mix of traditional and modern retailing 0,0 0 and the market is similar to the EU market of the 1970s, with an approximately 2008 2009 2010 2011 2012F 2013F 2014F 2015F 56% share held by traditional small domestic retailers. In the EU countries, this percentage is around 15% and the market is mature and the market dynamics Retail Sales (TL billion) Retail Sales per capita (TL) are not expected to change significantly. Source: Business Monitor International► However there is a large room to grow for modern retailing in Turkey in line with Private Consumption vs. Population the trends in the market.► In parallel with the macroeconomic growth and stable economic conditions, 78,0 1.600 1.368 retail sales experienced a strong growth between 1998 and 2008 with a CAGR 77,0 1.239 1.400 of 27.4%. Retailing saw positive market growth in 2010, as the sector returned 76,0 1.117 75,0 1.000 77,0 1.200 to its 2008 levels. Population (million) 74,0 899 76,2 786 1.000 TL (billion)► The TL 304 billion retail sector size of 2011 is expected to reach approximately 73,0 75,4 664 681 800 72,0 74,5 US$ 345 billion by 2015. The sales volume growth of the retail sector is 73,6 demonstrated in the figure on the right. Moreover, retail sales are projected to 71,0 72,8 600 70,0 71,8 grow with a CAGR of 3.2% from TL 304 billion in 2011 to TL 344.8 in 2015. 70,9 400 69,0 200► The projected CAGR for the private consumption in Turkey is 11.7%, which 68,0 points out the potential in organized modern retailing in Turkey and the increase 67,0 0 in the household population is one of the major factors behind this growth 2008A 2009A 2010A 2011E 2012F 2013F 2014F 2015F projection, as demonstrated in the figure on the right. Population (in million) Private Consumption (TL billion) Source: Business Monitor InternationalPage 9 Turkish Business Environment & Retail Sector in Turkey

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Retail SectorSector Overview Sector Overview Retail Sector Breakdown (Food vs. Non-Food), 2010► According to the Turkish Council of Shopping Centers & Retailers, the volume of the retail sector is approximately US$ 171 billion in Turkey and the organized retail market constitutes approximately 44% of the overall market. The total sales area and the employment figures are respectively 23 million sqm and 1.8 million 41,3% employees in 2010 according to the data by the Turkish Council of Shopping Centers and Retailers. Moreover, the Council projects a market size of US$ 279 billion by 2013. 58,7%► The retail market in Turkey can be separated into five main sub categories, which are: ► Food Retail ► Home Retail ► Apparel Retail Food Retail Non-Food Retail ► E-Commerce Retail Source: Turkish Council of Shopping Centers and Retailers ► Electronics Retail► The food retail sub category is the largest category in the sector and it constitutes Breakdown of Non-Food Retail Sector, 2010 58.7% of the market. The breakdown of the retail sector sales volume in 2010 is demonstrated in the figures on the right. The below figure illustrates the breakdown of the non-food retail sector into the four main sub categories. Home 10,8% retail is the largest sub category in non-food retail sector. 13,9%► In the food sector, most Turkish consumers meet their daily shopping needs 39,3% through a variety of smaller shops. However, mass grocery retail (“MGR”) outlets have become increasingly popular thanks to the quality and range of their products -- boosting demand for packaged foods and the convenience of one-stop shopping.► The economic growth, an expanding population, especially in urban areas, rising levels of disposable income, and the continued development of organized retail infrastructure, are the major factors for the expected growth in the retail industry in 36,0% Turkey.► Furthermore, Consumer Confidence Index has reached 90.99 at the end of 2010 Home Retail Apparel Retail E-Commerce Retail Electronics Retail in Turkey. Source: Turkish Council of Shopping Centers and RetailersPage 10 Turkish Business Environment & Retail Sector in Turkey

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Retail SectorSector Overview Major Trends in the Sector Consumer Spending per Capita► As with the EU countries, which saw organized retail grow from 51% to 85% of 14.000 12.948 the market in two decades, there is clear scope for rapid Turkish expansion. In 2010 - 2014 CAGR: 16.7% 11.551 12.000 2006, there were just three hypermarkets and 17 supermarkets per 1 million of 9.888 population in Turkey, against 15 hypermarkets and 150 supermarkets in EU 10.000 countries. 8.188 8.000 6.897 6.977 Analysis of retail market share in countries before and after EU accession 6.315 US$► 5.883 shows that traditional retailers lose almost half of their market share shortly 6.000 after entry to the EU. However, with negotiations having only started in 2005, actual EU accession for Turkey is still a very long way off and is not expected 4.000 until 2015 at the earliest. 2.000► The growing competition in the market is leading to an increase in brand 0 choice and improvement in brand quality, resulting in growing demand for 2007A 2008A 2009A 2010A 2011E 2012E 2013E 2014E retail products. This in turn is attracting a large number of leading retail chains Source: TURKSTAT, Business Monitor International to Turkey.► The consumer spending per capita has decreased by 14.7% in 2009 in Turkey as a result of the global financial turmoil and it increased again back to 2008 levels in 2010. Furthermore, it is estimated that the consumer spending per capita is projected to increase with a CAGR of 16.7% during the time period between 2010 and 2014.► Market penetration is rising in parts of Istanbul and Ankara and these cities still offer major opportunities for retailers and developers. However there are even more opportunities in the untapped markets in the rest of Turkey.► Entertainment and leisure have become a crucial aspect of the new wave of retail developments. In addition to cinemas and restaurants, developers are being more adventurous and including entertainment and leisure aspects in the shopping malls.► Retail sales constitute 24.2% of total GDP in Turkey and the share of organized retail is 9 – 10% of the total GDP in 2011.Page 11 Turkish Business Environment & Retail Sector in Turkey

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Retail SectorMergers & Acquisitions Activity (2008-2011)Significant M&A activity has been observed in the retail sector in Turkey recently► The mergers & acquisitions (“M&A”) deals in the retail sector in Turkey in the period between January 1, 2008 and June 31, 2011 are demonstrated in the below figure. 34 deals have been closed in this period and the deal values of 15 deals have been disclosed with a total disclosed deal value of US$ 2.65 billion and an average deal value of US$ 176.6 million.► Furthermore, according to the survey results in the 2011 M&A Report of Ernst & Young, Turkish business world is optimistic regarding the future of the retail sector in terms of M&A activity in 2012 and approximately 11% of the participants believe that retail will be the most promising sector in 2012. The survey results are illustrated in the below figure. Number of Deals - Retail Sector vs. Turkey (2008 –2011) Expected M&A Activity by Sectors in 2012300 23,7% 264 25,0% 241250 20,0% 15,1% 14,0%200 172 15,0% 12,9% 10,8% 9,7%150 10,0% 8,6% 115100 5,0% 2,2% 2,2% 1,1% 13 12 0,0% 50 9 7 0 2008 2009 2010 2011 Retail Sector Deals Total Deals in Turkey Source: Ernst & Young M&A Reports 2008, 2009, 2010 and 2011 Source: Ernst & Young M&A Report 2011Page 12 Turkish Business Environment & Retail Sector in Turkey

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Retail SectorSWOT Analysis Strengths Opportunities► Attractive Demographics: population of 74 million with a 1.5% growth ► Organized retail sector is still under-penetrated despite the rate annually. Average household size of 3.9 people vs. EU average of sector’s higher than market growth and constitutes 44% of the 2.5 grocery retailing vs. 80% in EU► Strong GDP growth outlook resulting in an increase in purchasing ► Only 20% of cities of Turkey over 1 million population. Other power cities are growing with the economic expansion which means a► Grocery consumption are relatively immune to economic downturns huge potential for new organized grocery retail stores in the country► Compared to EU countries, a relatively low cost qualified workforce supports the expansion of the sector ► Increasing number of shopping malls► With their increasing purchasing power, organized retailers have a ► The government may support organized retailing expansion lowering effect on inflation► Strong domestic production in grocery and limited share of imported goods Weaknesses Threats► Fragmentated traditional retailers may attract customers during ► Although the organized retail sector is relatively immune to economic downturn with the ability to provide late payments and tax- economic downturns, an unforeseen economic crisis may free shopping slowdown national players’ investment programs and hence new space additions► IT infrastructure in logistics is not developed and manual management affects the efficiency of the sector ► Politic and economic uncertainties in the eastern part of the country may limit growth prospects in this region► Price can vary from region to region and players can suffer from margin pressure ► The draft retail law may bring additional bureaucratic layers to organized retailers’ new stores with a sales area higher than 400► Most customers still prefer to purchase unpackaged foods from sqm in addition to limits on working days as well as operating groceries and bazaars instead of organized retailers hoursPage 13 Turkish Business Environment & Retail Sector in Turkey

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Retail SectorShopping Malls► Turkey has the third highest number of shopping malls in Europe, after Spain and Russia.► The young population of Turkey (nearly 75 million) attracts the establishment of several department stores and shopping malls with large foreign investment. In addition, such shopping malls make the process of shopping easier for consumers as they get the opportunity to shop for lots of items under one roof.► Increasing competition in the market leads to an increase in brand choice and improvement in brand quality, which inevitably results in growing demand for the retail products. This in turn attracts a large number of leading retail chains to Turkey.► The current demand for convenience shopping keeps increasing and the number of shopping malls surges, especially in Istanbul and other large cities. Retailers are also investing in medium-sized cities by introducing smaller formats to improve market access► According to Council of Shopping Centers, there is still a big potential for shopping mall development in Turkey due to the fact that there are currently 49 cities which don’t have any shopping malls.► While İstanbul is ranked #1 with 102 shopping malls, it is followed by Ankara with 32 shopping malls and İzmir with 17 shopping malls.► The sector created employment for 350,000 people as of 2011. With the developments until 2015, it’s expected that this number would increase to 500,000 people. Number of Shopping Malls Total Leasable Retail Area in the Shopping Malls400 344 6.500350 7.000 270 5.700300 263 6.000 CAGR: 19.4% 236 4.900 CAGR: 21.3% 5.000 Thousands250 210200 166 4.000 3.500 133 2.500150 106 3.000 2.100 81 93 1.700 1.900100 35 46 53 60 2.000 1.100 1.300 1.400 50 10 12 14 18 25 1.000 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total Leasable Retail Area (in sqm, per year)Source: Turkish Council of Shopping Centers and Retailers Source: Turkish Council of Shopping Centers and RetailersPage 14 Turkish Business Environment & Retail Sector in Turkey

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Food RetailSub-Category Overview and Major Players► Turkey is the 5th largest country in the world in terms of spending on food. The Turkish food industry is enjoying continuous growth trends due to the young population of the country, high urbanization rates, and rising income levels. The food retail sub-category has also seen robust economic growth in the last years. The sales of large food retailers have risen and new hyper and supermarkets are continuing to be opened at an incredible rate. Moreover, the discount store concept has been developing rapidly in Turkey and the number of discount stores have increased rapidly in the recent years.► As the largest category in the Turkish retail sector, food retail had a market size of US$ 96 billion in 2010 and has grown with a CAGR of 6.3% in the last 5 years.► The food retail sub-category is classified into two major groups, organized and unorganized retailers. Organized retailers are mostly chain stores that have a corporate entity and are fully registered. Unorganized retailers, also called the traditional market, constitute smaller, single stores and bazaars. As mentioned before, the market is evolving in Turkey and the organized modern retailers are gaining more importance in the market. Major Organized Retailers by Format Tesco Migros Bim Carrefoursa Kipa Metro Group Şok A101 Kiler Bizim ToptanHypermarket X X X XSupermarket X X X XDiscount X X X X XCash&Carry X XSource: Analyst Reports► The hypermarket segment is dominated in Turkey mainly by international retail giants and Segment Breakdown of Food Retail Revenues there is more room for growth in the segment. The selling space per 1,000 inhabitants increased from 6 sqm in 2004 to 10 sqm in 2010. However, the penetration is much higher 100,0 in developed countries at 80 sqm.► Among the four formats, supermarkets are expected to have the slowest growth rate in the 80,0 18,4 17,8 18,2 following years since the supermarket segment is already mature in Turkey and 18,1 supermarkets are small enough to benefit from higher return and penetration prospects. 60,0 TL billion 33,9 33,0► The discount format is relatively new in Turkey compared to its European peers. With 33,7 40,0 33,3 establishment of BIM in 1995, the discount format started to evolve, and until today, the 8,9 9,9 segment achieved an overall penetration of 11% within the grocery retail market in Turkey. 7,2 20,0 4,9 In order to compete with the growth trend in the discount segment, major retailers are 22,8 25,1 27,6 19,0 changing their strategies and going for concepts such as fast shopping, gourmet and 3,0 4,3 4,4 5,0 0,0 boutique stores. 2006 2007 2008 2009► The cash & carry segment is quite under-penetrated with organized cash & carry having a 5% market share. The biggest players are Metro Group (German) and Bizim Toptan Hypermarkets Supermarkets Discount Stores Small Groceries Specialist Stores (Turkish). Source: Analyst ReportsPage 16 Turkish Business Environment & Retail Sector in Turkey

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Home RetailSub-Category Overview and Major Players► Home retail sub-category is the second largest category in the retail sector in Turkey with a market size of US$ 26.5 billion in 2010.► The growth in the Turkish home retail market accelerated in the beginning of the 1990s when international players such as Tefal penetrated and widened the product variety in the market which was formerly dominated by local manufacturers.► Altering the tastes of Turkish customers and forcing the existing local players to adapt to the new product range, international players also created an environment where new Turkish competitors emerged.► Entrance of discount retailers such as Bauhaus and Ikea and their respective growth implied the vast market potential for the household goods retail industry.► Today there are several domestic and international players in Turkey each differing from others in terms of their product range and retailing strategy.► Main players in the home retail market are ► Home improvement product retailers: Koçtaş, Bauhaus, Praktiker, Ikea, Tekzen ► White goods retailers: Arçelik, Vestel ► Medium scale home retailer companies: Esse, Güral Porselen, Kütahya Porselen, Zara Home, Tepe Home, Mudo Concept, Paşabahçe, Boyner Evde, YKM, Karaca, Tefal, Evkur ► Small scale home retailer companies: Bernardo, Jumbo, Monev, Tantitoni, English Home Major Drivers of the Home Retail Market Growth► New Household Additions: New marriages, changes in the Turkish family structure and an increasing number of people living alone, such as students and single professionals, create a significant growth in the number of Turkish households. As of 2010, there are approximately 19 million households in Turkey and it is expected to have 2 million new additions within 3 years.► GDP per Capita and Consumer Spending: In line with the GDP growth, per capita consumer spending level of US$ 6,977 in 2010 is expected to reach US$ 12,948 by 2014. Retail expenses constitute 35% of the overall spending and the spending growth is expected to remain at its fast pace.► Gross Leasable Area in the Shopping Malls: Home retailers tend to locate their stores in shopping centers since the shopping centers have large catchment areas including the target consumer group of these retailers. Therefore, new shopping centers represent a potential to extend retail business into new markets.Page 17 Turkish Business Environment & Retail Sector in Turkey

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Apparel RetailSub-Category Overview and Major Players► Apparel sector reached a market size of US$ 24.3 billion in 2010, which constituted around 27% of non-food retail market in Turkey.► This ratio was 22% in 2005 and it is expected to be realize around 33% by 2014.► In Turkey, demand of apparel retail is forecasted an increase by 11% per annum between 2011 and 2015, with this growth Turkey can be the largest markets in Europe by the end of this period.► Top leading apparel and footwear retailers companies are: ► LC Waikiki, Koton, ► Zara, Network ► Mavi Jeans ► Sarar Giyim ► Damat Tween ► İpekyol ► Vakko, Beymen► The number of outlets increased in mixed retailers considerably in 2010. Local companies such as Boyner and YKM increased the number of their outlets year-on-year. Expected growth value of sales for mixed retailers is around 18% by 2015.► Some of the mixed retailers are: ► Boyner ► YKM ► H&M ► C&A► Another highlight of the apparel retail area is the increasing demand for children apparels. 15% of Turkey’s population is comprised by the people under the age of 12 and such a young population attracts investors to make investments in children apparels, which managed to grow by 15% within 2011.Page 18 Turkish Business Environment & Retail Sector in Turkey

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E-Commerce RetailSub-Category Overview and Major Players► In Turkey, there are numbers of e-commerce sites that offer services as sale of second-hand goods, real estate, ticket purchases and food delivery. Fashion, media, jewellery and auto parts are other important product categories for the leading E-Commerce players.► Sahibinden.com was the leading e-commerce player in Turkey as of September 2011, followed by Gitti Gidiyor. Multi-category retailer Hepsiburada.com is ranked third, as the company distributed more than 330,000 products in more than 36 categories in 2011.► Private shopping site Trendyol is also within the Top 10 of the ranking. The website already had 2 million registered users in the beginning of 2011.► E-Commerce sales in Turkey increased by 52% over the first nine months of 2011 compared with the same period the year before, to stand at TL16.9 billion (more than €8.5 billion).► The total amount spent on e-commerce sites reached US$ 9.4 billion in 2010 (which was US$ 5.8 billion in 2009) through 96.1 million (67.3 million in 2009) transactions.► The sector with the biggest online growth is services sector with a total turnover of TL 2.3 billion which is a 69% increase compared with the year before.► As of 2011, some of the important M&A transactions: ► A major multimedia player, Naspers, has penetrated the Turkish internet market by acquiring approximately 70% of the shares of Markafoni ► Amazon has acquired a minority stake in Ciceksepeti, which operates an online flower and gifts store in Turkey ► Kleiner Perkins Caufield & Byers and Tiger Global invested between US$ 25 million and US$ 30 million in private shopping site Trendyol ► Swedish investment company Quants Financial Services recently bought a majority stake in Grupfoni.Page 19 Turkish Business Environment & Retail Sector in Turkey

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Electronics RetailSub-Category Overview and Major Players► In 2010, the size of the consumer electronics market in Turkey Distribution of Electronics Retail by Segments, 2010 realized US$ 7.3 billion and is expected to increase by more than 52% to US$ 11.1 billion by the end of 2014. The distribution of consumer electronics by main product segments is presented in the 16,0% figure on the right.► The large global consumer electronics vendors prefer to set up local offices in Turkey due to relevant costs.► Electronic devices had US$ 8.71 billion demand at the end of 2011, 22,0% and it is expected to have an increasing demand thanks to the 62,0% growing popularity of digital lifestyle devices such as LCD TV sets, notebook computers and digital cameras, as well as rising incomes and lower prices.► Digital camera penetration is expected to reach 80% by 2012 and PC Computer hardware related Audio-visual equipment Mobile phones penetration is projected to reach 33% by 2015 while mobile Source: Business Monitor International subscriber penetration has reached 80%. In consumer electronics sector, the main market players are; ► Teknosa ► Bimeks ► Media Markt ► Electro World ► Darty ► Gold Computer ► Vatan ComputerPage 20 Turkish Business Environment & Retail Sector in Turkey